The startup ecosystem of Pakistan is growing every day. At some point in the journey of a startup, the question about investments comes up. This is the point where the founders have to decide whether they want to scale their businesses with or without an investment. Here is an investor’s perspective on the current condition of the entrepreneurial ecosystem in Pakistan.
While we’re still in the early stages of the ecosystem, we see that the building blocks are very much there. I haven’t come across a single ecosystem that is perfect before different stakeholders get involved. So, we can’t expect the ecosystem to be perfect and that’s an opportunity because there are a lot of things to be fixed as well. The most important building block is inculcating the mindset in the youth that entrepreneurship is a viable career choice.
We’ve made tremendous strides in that regard during the last 3-5 years. Government, donor agencies, universities and other stakeholders have supported this. The second big component is the uptake of 3G and 4G and an increasing digital penetration. The final piece is that some of the underlying businesses, as a result of increasing Internet penetration, are seeing increased traction. VCs and capital coming into this asset class is increasing – this will enable startups to grow exponentially. We’re yet to see a flurry of companies emerging, there are some that have already reached that level. One such example is of Zameen, which now has a very decent valuation.
When you look at the entrepreneurial ecosystem of Pakistan, there’s good news and there’s bad news. The good news is that when you compare it with the condition that was there 5 years ago, there are at least 25 accelerators and incubators in existence in Pakistan. The locations where people can go and learn about being entrepreneurs didn’t exist previously in Pakistan – that’s the good news. The not-so-good news is that we have limited seed capital available. There are hardly any VCs or angel investors available – local or international. The lack of capital is causing a high degree of failure of startups. The natural percentage of startups failing globally is 90% in any case; with the dearth of capital available, our percentage goes up. Unfortunately, our local family offices – individuals of high net worth are not investing in startups at all. Lack of capital, at the moment, is a real showstopper for Pakistan’s ecosystem. The second thing is that the ecosystem does not support startups in the sense that getting a simple bank account is a challenge for startups. There are no significant tax benefits for people who are investing and those people who are receiving the investment.
The entrepreneurial ecosystem has grown significantly over the last five years – there are more competitions, startups, support organizations, investors, you name it. I remember when we started i2i, there was maybe an event happening a month around the country – seven years later and there are multiple events happening every weekend – that activity is something to be proud of. However, while the increased activity is certainly exciting, and the government’s move of launching National Incubation Centres signaled an investment by the public sector in the startup landscape, the business-enabling environment is still very, very poor, and very debilitating to entrepreneurs and investors alike. The taxation policies still need to be improved significantly, the issue of payments and how money flows in and out of the country are all massive problems – the list goes on. The poor enabling environment ultimately creates a ceiling for the potential growth of the overall ecosystem – we can have all this incredible activity happening on the ground, but it can only grow so far thanks to these regulatory barriers.
To read more: http://startupguide.com.pk/magazine/